Amazon readies new spread to lure eateries away from Zomato, Swiggy

Highlights

Amazon is actively pitching to break exclusivity contracts restaurants have signed with food aggregators.

Amazon’s food delivery service is set to be launched from Bengaluru around Diwali.

The company will also deliver medicines and beauty products soon.

BENGALURU: US-based online retailer Amazon is proposing competitive commissions to lure restaurants onto its platform and break away exclusivity from established players Zomato and Swiggy, as it starts onboarding eateries, two people aware of the company’s strategy said.

Amazon’s foray into the cash-guzzling online food-ordering sector comes at a time when restaurants are protesting against large food-delivery aggregators for pushing deep discounts which they claim hamper business economics.

“Restaurants, which were paying a commission of 15-17% to food aggregators, are being given an introductory fee of as low as 6-7%” and the promise of high order volumes, an Amazon executive said on the condition of anonymity. “This was the exact same way Swiggy started,” he added.

A commission is a service fee the aggregator charges a restaurant for providing a food delivery order.

The ecommerce behemoth is actively pitching to break exclusivity contracts restaurants have signed with food aggregators, the company executive said.

Amazon did not respond to ET’s email until the time of going to press.

The etailer’s food delivery service is set to be launched from Bengaluru around Diwali, through its two-hour delivery app Prime Now, under the brand ‘Amazon Restaurant’, the sources said. The company plans to keep the business focused on the top metros, they said. “They will look to increase use cases for their premium customers and bulk up the Amazon Prime user base,” another company executive said. “Categories like food and grocery delivery form a large part of driving repeats.”

The company will also deliver medicines and beauty products soon, among others, he added.

Amazon and Catamaran Ventures’ local joint venture Prione Business Services has already started hiring sales and account managers as it nears the official launch date.

“These people are already approaching restaurants to understand their dependencies on other food aggregators, and nuances like top selling items, among other issues,” said another person privy to the company's plans.

Amazon is also roping in cloud kitchens like FreshMenu, Rebel Foods, Foodpanda and Eat.Fit as well as top restaurant chains such as McDonald’s, Domino’s, KFC, and regional chains, he added. These were first on its target list.

Cash burn to intensifyAmazon’s decision to launch food delivery on its own comes after it explored several models including investing, buying out, partnering with cloud kitchens, and other food aggregators.

“Amazon held talks with each of the players in the ecosystem and explored many avenues, including investing in some cloud kitchen brands. However, none of these deals materialised since taking an investment from Amazon is a huge signaling risk for the brand,” said an entrepreneur who runs a cloud kitchen, requesting anonymity.

In a cloud kitchen, operators prepare, package and deliver food without providing any dine-in facility to end-consumers.

Amazon’s food delivery launch is likely to intensify the cash burn in the sector, investors pointed out. Rivals Swiggy and Zomato continue to burn close to $30-40 million each month on discounting, logistics and restaurant tieups, yet the space has no clear market leader.

Swiggy clocks an estimated 1.2 million orders a day across 300 cities while Zomato fulfils about 1 million daily orders across 500 cities, according to industry sources.

ET reported earlier that Uber had halved annual cash allocation to $90-120 million for its food-delivery business in India. Ola, too, has pulled out from its food-delivery business, Foodpanda, and is instead selling private brands.

In June, Amazon shut down its four-year-old Amazon Restaurants delivery service in the United States, while in Europe, it has invested in food delivery platform Deliveroo after shutting down its own service in the UK.